Credit Control – Definition, Importance & Who Can Use Credit Control?

Credit Control

Table of Contents

What is Credit Control?

Credit control can be defined as a system or strategy that is used by banks, NBFCs and other financial institutions to ascertain the repayment capabilities of borrowers of customers to whom the money is being lent. This system helps in finding a high credit score or credit record and usually, money lending institutions insist on lending to customers who get a good record.

Any applicant who pays their loan on time with an excellent track record gets a good credit score. This process typically helps money lenders to bring down the risk of default at the time of lending money to the new borrower.

Understanding Credit Control

Credit control is a very important tool for all those money lending institutions, which are commonly used and they work first before processing your application. Because it helps institutions to identify customers with poor or good credit reports so that they can manage their risk level for lending money.

It also helps money-lending institutions, because when you deal with customers having a good credit score. Their chances of not paying their debt will be very low. Which ultimately helps these institutions to maximize their profits.

Who Use Credit Control?

Banks, NBFCs and other financial and non-financial institutions always use credit control systems to ensure that their lending will be profitable or not. By analyzing the possibility of loan repayment by the applicant with the help of his credit score.

Credit control also works as control management for money lenders as it always monitors and suggests you to reduce losses by not allowing loans to borrowers with poor credit scores.

Why is Credit Control Important?

Credit control plays an important role while lending money and maintaining cash flow for the financial institution.

Suppose a lending institution lends money, without considering the credit-control of the borrower. Poor credit rating lenders come with a high probability that they are likely to miss or delay payment. As he is poorly rated due to his poor payment history.

If an organization does these types of things on a regular basis, where the borrower is not paying its dues on time, and as time progresses, things become widespread. The institute will soon run out of cash and there can be a high probability that the institute will go bankrupt soon.

Credit control always ensures that the applicant has a good credit score, indicating that their good repayment ability and institutions can mainly focus on lending money to these applicants.

When you easily find delinquent customers, this process reduces your bad debts and helps them maintain their cash flow which can be used for other tasks.

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